Educational Articles

Net Neutrality Legislation Change Could Be A Gold Mine

Robert J. Scrudato
| April 07, 2014

Net neutrality is a term used to describe how Internet service providers are meant to treat data that is present on the web. It suggests that these companies cannot discriminate or differentiate by user, provider, or platform, to charge variable amounts for different types of data or different applications by which said data is conveyed. It is a practice that has held true since the dawn of the web, largely as a result of neutrality proponents warning of the potential power its absence would offer internet providers, suggesting that they could block or downgrade performance, and force the consumer to pay more in a non-competitive market. In fact, in 2007 Comcast (CMCSA) was brought up on charges for bandwidth throttling, and was forced to adopt a new system for bandwidth management.

In January of this year, however, new legislation came to pass. Verizon Communications (VZ - Free Verizon Stock Report) filed suit with the Federal Communications Commission (FCC), contesting that the body has no authority to enforce the rules of net neutrality, since the service providers that offer the web to so many customers are not defined as common carriers. Verizon did not completely win the claim, as the FCC was found to have the authority to regulate the Internet. However, a loophole in the rules administered by the FCC left Verizon, and other "information service" providers, outside their jurisdiction. Since that time, Verizon has been the target of allegations suggesting that the company has slowed its access for services like Netflix (NFLX) and Amazon (AMZN).

Ridicule aside, this ruling has the potential to create big opportunities for Internet service providers within the United States. Companies like AT&T (T - Free AT&T Stock Report) have already begun submitting patents to take advantage, and one would think the rest of the industry will not be far behind. A feasible possibility would be a potential price tiering system that many of these companies already use to administer television channels and special packages. Also comparable, would be the method by which the aforementioned companies offer data to their cellular phone customers. Nevertheless, the ability to charge consumers for better levels of browsing and streaming speed would strengthen their current revenue streams a great deal.

As previously mentioned, some of the largest targets for these broadband regulations would be sites like Netflix and Amazon. But recent reports have sited social media as potential outlets to test the waters. After all, services like Facebook (FB), Instagram, and Twitter (TWTR) have some of the highest click and refresh rates of any site present on the web. Streaming hubs like that of Hulu and Blockbuster would also fit the mold for this initiative.

Still, all is not said and done regarding this topic as a legal matter quite yet. As recently as late February, the FCC had announced plans that it would attempt to enforce new net neutrality rules that coincide with recent court rulings. Indeed, previously the FCC had classified its broadband service as a form of "telecommunications services", under which definition the term "common carriage" applies. But under its new set of rules, it would incorporate "information services" companies, as Verizon and AT&T have been defined, to return the principal of net neutrality.

As time has told, nothing in this world is a sure thing. And while the FCC has been granted the right to regulate broadband services, it does not mean that its new set of laws will be deemed legal or applicable to information services companies as we know them. Thus, while passing this bill does not necessarily hurt web service providers, it would thwart a golden opportunity to greatly boost revenues over the long haul.

At the time of this article’s writing, the author did not have any positions in any of the companies mentioned.